Canadian Tire Corp. Ltd. has the product it needs to fill shelves for the crucial holiday shopping season, even as supply-chain headaches continue to affect the retailer and its competitors across the industry, the company’s chief executive says.
The Toronto-based retailer, which owns store chains including Canadian Tire, Sport Chek and Mark’s, has been planning for months to contend with higher commodity prices, shipping container shortages, and factory shutdowns and delays. Like some other large retailers, Canadian Tire chartered its own ships to cope with those snarls.
“This strategic decision to charter four vessels enabled us to bring in key Christmas and winter categories in time for [the fourth quarter],” chief executive officer Greg Hicks said on a Thursday conference call to discuss the company’s earnings. “We have successfully built inventory to meet anticipated customer demand.”
As Canada’s largest general-merchandise and apparel retailer, Canadian Tire is getting its “fair share” of in-demand products from national brands, Mr. Hicks added. And owned brands such as Noma and Mastercraft give the company more control over production, and more insight into issues such as cost inflation, input shortages that require longer lead times on products, and longer-term shortages or inflation effects that may require products to be redesigned. Because of its size as an importer, the company benefits from strong relationships with vendors and the shipping industry, Mr. Hicks said.
Canadian Tire is also taking advantage of storage capacity at its stores and corporate-owned real estate to hold excess inventory – a strategy made possible by the fact that its merchandise is less “perishable” than that of fashion retailers, for example. And it has turned to third-party logistics companies to increase its storage capacity. By the end of the year, Canadian Tire will have shipped 15 per cent to 20 per cent more containers than in 2020, in order to meet shopping demand, Mr. Hicks said.
“While we’re pleased with how we’ve set ourselves up, managing the current supply chain challenges has resulted in incremental operating expense … and we expect this trend will continue into 2022,” he said. The company is assessing where cost pressures can be absorbed or offset, he added, but those pressures “are not insignificant.”
Canadian Tire reported a decline in third-quarter profit. The retailer’s net income fell to $279.5-million in the 13 weeks ended Oct. 2, compared with $326.3-million in the same period last year. The decline was partly driven by $18.9-million in costs related to the company’s cost-cutting program, such as spending on employee severance and IT projects.
That program, launched two years ago, aimed to save at least $200-million by 2022. Canadian Tire on Thursday announced that it has now met that goal, and is aiming for an additional $100-million in savings next year.
Canadian Tire’s comparable sales – an important metric that tracks sales not impacted by new store openings or closings – rose by 1.4 per cent in the third quarter, with backyard and gardening items, as well as hockey equipment, performing well. Comparable sales rose by 7.9 per cent at Mark’s. And growth was 11.2 per cent at Sport Chek, which benefitted from the return to organized sports.
But Edward Jones analyst Brian Yarbrough cautioned that “a slower growth environment” could be ahead for the retailer.
“We expect consumers will shift spending habits back to travel, leisure and entertainment, which could pressure sales for the rest of 2021 and several years beyond,” Mr. Yarbrough wrote in a research note on Thursday.
Customers have been returning to in-store shopping, but Canadian Tire’s e-commerce sales remain double what they were in 2019, at $257-million in the quarter.
Canadian Tire’s third-quarter revenue fell by 1.8 per cent to $3.9-billion, compared with the same period last year.
The company hiked its dividend payment to shareholders on Thursday, announcing that the annual dividend would increase by 10.6 per cent to $5.20 a share.
Canadian Tire also reinstated a share-buyback program, and intends to repurchase up to $400-million in shares by the end of next year.
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